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Unformatted text preview: Intermediate Macroeconomics Chapter 10: Aggregate Demand I Building the ISLM Model Instructor Geoffrey Williams Rutgers University June 18, 2009 Instructor Geoffrey Williams Chapter 10: Aggregate Demand I Outline Instructor Geoffrey Williams Chapter 10: Aggregate Demand I John Maynard Keynes(5 June 1883 21 April 1946) was one of the most influential economists who ever lived His analysis of the Great Depression and the proper responses to it completely changed macroeconomics (some people would say it started macroeconomics) His major work is The General Theory of Employment, Interest, and Money , published in 1936 Instructor Geoffrey Williams Chapter 10: Aggregate Demand I The ISLM Model Described by Mankiw as the leading interpretation of Keyness theory The IS curve stands for investment and savings and represents the market for goods and services LM stands for liquidity and money and represents whats happening to the supply and demand for money The interest rate links the two curves together Instructor Geoffrey Williams Chapter 10: Aggregate Demand I Where the ISLM Model Fits Instructor Geoffrey Williams Chapter 10: Aggregate Demand I Where the ISLM Model Fits, contd Instructor Geoffrey Williams Chapter 10: Aggregate Demand I Planned Expenditure Keyness theory focuses on changes in spending (demand) as the key driver of the business cycle We begin by looking at planned expenditure, E E = C + I + G Instructor Geoffrey Williams Chapter 10: Aggregate Demand I Planned Expenditure We know what C is C = C ( Y T ) We set investment as fixed I = I And finally, we assume that government actions are fixed G = G T = T Instructor Geoffrey Williams Chapter 10: Aggregate Demand I Planned Expenditure We know what C is C = C ( Y T ) We set investment as fixed I = I And finally, we assume that government actions are fixed G = G T = T Instructor Geoffrey Williams Chapter 10: Aggregate Demand I Planned Expenditure We know what C is C = C ( Y T ) We set investment as fixed I = I And finally, we assume that government actions are fixed G = G T = T Instructor Geoffrey Williams Chapter 10: Aggregate Demand I Planned Expenditure...
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 Fall '10
 MacroWilliams,MicroYoshi

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